Monopolistic Advantage Theoryan approach in international business which explains why a particular national firm is able to compete with indigenous competitors in overseas market. He started by looking at international investments which classified into two: portfolio investment and direct investment. Control is the key factor which differentiates one another. If the investor directly controls the foreign enterprise, his investment is called a direct investment. If he does not control it, his investment is a portfolio investment. Basis theory of portfolio investment is the theory of capital movement across nations mentioned that the main determinant of movement of funds across frontiers is interest rates. However, in terms of international production (FDI), there’re some criticisms about this theory: 1.FDI does not necessarily involve movement of funds from the home to host country (some firms are also borrowing abroad). 2.FDI often takes place both ways: both countries involved are investors and host to FDI 3.If the main determinant of FDI is interest rate differentials between countries, FDI is expected to exist in a particular country with various industries. However, FDI tends to concentrated on particular industries across various countries Hymer also specified that FDI exists not because of interest rate differential It is about the international transfer of proprietary and intangible assets - technology, business techniques, and skilled personnel. Hymer assumes that FDI involves extra costs and risks, such as: 1.Cost of communication

2.Costs due to less favourable treatment (discrimination) by host country governments, suppliers or consumers 3.Different politics and economics conditions of foreign countries 4.Barriers in terms of lacking of familiarity with the customs and language/culture differentials 5.Costs and risks of exchange rate fluctuations

The reasons why firms willing to accept extra costs and risks are because of the expected...

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MonopolisticAdvantage Theorybr /
span classtab/spanan approach in international business which explains why a particular national firm is able to compete with indigenous competitors in overseas market. He started by looking at international investments which classified into two portfolio investment and direct investment. Control is the key factor which differentiates one another. If the investor directly controls the foreign enterprise, his investment is called a direct investment. If he does not control it, his investment is a portfolio investment. Basis theory of portfolio investment is the theory of capital movement across nations mentioned that the main determinant of movement of funds across frontiers is interest rates. However, in terms of international production (FDI), therersquore some criticisms about this theory 1.span classtab/spanFDI does not necessarily involve movement of funds from the home to host country (some firms are also borrowing abroad). 2.span classtab/spanFDI often takes place both ways...

...﻿THEORY OF ABSOLUTE ADVANTAGE
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, [we had] better buy it of them with some part of our own industry, employed in a way in which we have some advantage.”
-Adam Smith (WN, IV.ii.12)
This means that a nation produces and exports those commodities which it can produce more cheaply than other nations, and imports those which it cannot. A nation will not produce a good that is produced more expensively at home than abroad –be it “a thirtieth, or even a three hundredth part more” (WN, IV.ii.15)
In economics, absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input.
Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.
Origin of the...

...MONOPOLISTIC COMPETITITION
Marshall’s perfect competition was an illusion. Mrs. Robinson’s imperfect competition and monopoly were also away from reality. Pure monopoly is a myth. Seller can claim monopoly only and only if he has command over buyer’s choice. No seller can have such a control because buyers have an alternative to buying. Not buying. So long as that option exists, monopoly remains a myth.
In mid 1930s, Prof. Chamberlin developed his theory ofmonopolistic competition. He pointed out the Marshall’s assumption of large number was not the reason that made a seller a ‘price taker’. In practice there may be a reasonably large number of sellers in a market. They become price makers because they have an identity that they create and preserve. Chamberlin dropped the assumption of homogeneity of product and perfect knowledge to develop his theory.
Chamberlin defined a ‘product’ in a different way. He said that a ‘product’ is a bundle of satisfaction. Anything that changes the satisfaction of the buyers would change the value of the product. He introduced the concept of ‘product differentiation’ He argued that a large mass of product is differentiated by quality, quantity, size, shape, surrounding under which the product is sold, methods of selling and the like. Even the image of the seller and the locational factors would be a part of product differentiation.
In perfect competition, buyers and sellers...

...Topic Question:
Is monopolistic competition more efficient than perfect competition?
A market is an economic environment in which buyers and sellers in an industry operate. There are four degrees of competition in the market: monopoly, oligopoly, monopolistic competition and perfect competition. As firm numbers rise from one single firm dominating the market in a monopoly to many small firms in perfect competition, the less influence an individual firm’s supply has on total supply and therefore on price because it competes with a large number of other firms.
The basic model of perfect competition is based on five main assumptions. The first assumption is that a price taking behaviour exists for all parties meaning that they have to accept the market price and cannot influence it. This is due to the negligible effect each individual firm has on the market price due to its small market share. The second assumption is that the market is characterised by free entry and exit meaning that new firms can enter and exit the market without any restrictions on the process and thus, without incurring any special costs. Special costs would be costs that the new firms have to pay although the incumbents did not. Furthermore, the output of the firms is homogeneous meaning that the goods are identical to the consumer and therefore the goods are not substitutes of each other. Another characteristic in perfect competition is that perfect knowledge...

...Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location). In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.[1][2] In the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933).[3] Joan Robinson published a book The Economics of imperfect competition with a comparable theme of distinguishing perfect from imperfect competition.
Monopolistically competitive markets have the following characteristics:
There are many producers and many consumers in the market, and no business has total control over the market price.
Consumers perceive that there are...

...The Comparative AdvantageTheory of Competition Author(s): Shelby D. Hunt and Robert M. Morgan Source: The Journal of Marketing, Vol. 59, No. 2 (Apr., 1995), pp. 1-15 Published by: American Marketing Association Stable URL: http://www.jstor.org/stable/1252069 . Accessed: 24/03/2011 04:09
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...HOMEWORK 1
4. Theory of comparative advantage:
The theory provides a basis for explaining and justifying international trade in a model world assumed to enjoy free trade, perfect competition, no uncertainty, costless information, and no government interference.
5. Limitations of comparative advantage:
a. Countries do not appear to specialize only on those products that could be most efficiently produced by that country’s particular factors of production.
b. Governments interfere with comparative advantage for a variety of economic and political reasons.
c. Capital and technology; now flow directly and easily between countries rather than only indirectly through traded goods and services.
d. Modern factors of production are more numerous than in this simple model.
e. Terms of trade are determined partly by administered pricing in oligopolistic markets.
6. Trident’s Globalization:
a. International trade phase- exporting products and services to one or more foreign markets; increased demand of financial management.
* Direct foreign exchange risk- experience significant risks from the changing values associated with foreign currency payments and receipts.
* Credit risk management- evaluation of credit quality of foreign buyers and sellers; reduced possibility of non-payment for exports and non-delivery of imports.
b. Multinational phase- establish foreign sales and service...

...Meaning of Monopolistic competition
A market structure in which several or many sellers each produce similar, but slightly differentiated products. Each producer can set its price and quantity without affecting the marketplace as a whole.
Pure monopoly and perfect competition are two extreme cases of market structure. In reality, there are markets having large number of producers competing with each other in order to sell their product in the market. Thus, there is monopoly on one hand and perfect competition on other hand. Such a mixture of monopoly and perfect competition is called as monopolistic competition. It is a case of imperfect competition.
Monopolistic competition has been introduced by American economist Prof. Edward Chamberlin, in his book 'Theory of Monopolistic Competition' published in 1933.
Equilibrium under monopolistic competition
Under monopolistic competition, as in all other market situation each firm attempts to maximize its profits. It will, therefore, choose that price and level of output which gives maximum profits and this will be achieved at the point where its marginal revenue is equal to marginal cost. In other words, the equilibrium of a firm under monopolistic competition is attained when its marginal revenue equals marginal cost.
However, in order to maximize its profit, a firm under...